Aaaand You’re Bankrupt. Thanks, COVID

Well, the final numbers are in.

Chapter 11 and 7 filings for large companies (defined here as public and private enterprises with liabilities greater than $50 million) jumped nearly 70% last year thanks to the pandemic.

On Bloomberg’s data (which I’d note appears to have been revised higher for previous years versus estimates featured in earlier reporting), there were 244 such bankruptcies in 2020. That compares to almost 300 in 2009, in the wake of the financial crisis.

Not surprisingly, the locus of the pain was energy, which suffered 47 large bankruptcies.

There were more than two-dozen in retail, the most since 2008, and another 34 in consumer discretionary. As it turns out, it’s hard to make “discretionary” purchases when you can’t leave the house at your discretion.

Note that filings from energy companies exceeded those during 2016, when oil prices plunged.

Needless to say, this isn’t over. Some businesses made it through 2020 solely due to government assistance. The winter COVID wave and associated lockdowns doubtlessly pushed some teetering retailers and other impacted businesses over the edge.

Consistent with the narrative that says the pandemic exacerbated a number of deleterious (depending on your point of view) trends, the already rapid shift away from brick and mortar retail to E-commerce was accelerated by COVID. It remains to be seen whether shoppers who were still inclined to visit physical stores prior to the pandemic will come back once vaccine rollout is complete.

Note that these figures come despite billions in federal support for vulnerable sectors of the economy and, for publicly-traded firms, despite wide-open capital markets thanks to the Fed’s backstop for corporate credit. Indeed, investment grade and high yield borrowers tapped the market in record amounts (figure below).

In the end, it wasn’t enough to save everyone. And whatever additional stimulus Democrats manage to cram through Congress in the new year won’t be sufficient to stave off the inevitable for firms currently staring into the pestilent abyss.

All of the above is to say nothing of small businesses, some of which are simply gone forever.

Remember, small proprietors can’t sell shares in their bankrupt local restaurant to gullible Robinhood investors and use the proceeds to pay off people higher up in the capital structure.

For most mom and pop businesses, the restructuring process doesn’t play out in any Bloomberg or Wall Street Journal headlines. It plays out at the kitchen table.


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